Pound (GBP) subdued amid recession fears tied to tariffs
The pound (GBP) struggled to find direction at the start of the week, as warnings grew that fresh US tariffs could tip the UK economy into recession.
Analysts cautioned that the latest tariff threats from US President Donald Trump could shave as much as 0.7% off UK GDP over the coming years.
Sterling may remain muted this morning after the UK’s latest labour market report delivered mixed signals, with stronger-than-expected employment growth failing to push unemployment lower in November.
Euro (EUR) strengthens in spite of tariff risks
The euro (EUR) ticked higher on Monday, with its strong inverse relationship with the US dollar (USD) helping to support demand despite the threat posed by new US tariffs.
Trump has warned of tariffs against European nations opposing the US acquisition of Greenland, including an additional 10% charge due in February, rising to 25% by June should negotiations falter.
Looking ahead, Germany’s latest ZEW economic sentiment survey will take centre stage, with the euro likely to advance if confidence in the Eurozone’s largest economy continued to improve this month.
US dollar (USD) pressured by trade uncertainty
Although US markets were closed on Monday for Martin Luther King Jr. Day, an emerging ‘sell America’ trade dragged the US dollar (USD) lower.
This move was unsurprisingly linked to Trump’s renewed tariff threats, with investors worried they could spark a transatlantic trade dispute and prompt European countries to reduce purchases of US Treasuries.
As US markets reopen, the dollar may experience renewed volatility today as investors respond to the latest tariff developments.
Canadian dollar (CAD) steady as inflation picks up
The Canadian dollar (CAD) moved sideways at the start of the week, as rising domestic inflation offset the drag from weaker oil prices.
Should oil prices continue to ease, the ‘loonie’ could face renewed headwinds today.
Australian dollar (AUD) supported by firmer yuan
The Australian dollar (AUD) retained a positive bias in overnight trade, with the ‘Aussie’ advancing alongside a strengthening Chinese yuan.
New Zealand dollar (NZD) surges on upbeat figures
The New Zealand dollar (NZD) also jumped during Tuesday’s Asian session after a stronger-than-expected PSI for December showed New Zealand’s services sector expanded for the first time since February 2024.
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